Monday, November 23, 2009

Bad Sign: Health Reform Entices PEU's

Bloomberg reported:

Buyout managers see opportunity in health care, where companies are trimming costs and spinning off units in response to the economy, even as the industry stands to gain from U.S. legislation that may expand care to more than 30 million Americans, said Karen Bechtel of the Carlyle Group, the world’s second-largest equity firm.

“The combination of health-care reform and the recession has forced companies to be more careful about running their businesses,” said Bechtel, who heads the Washington firm’s health-care unit, in a telephone interview. “That’s driving (buyout) activity, and it will accelerate.”

Why should the public be excited about private equity underwriters (PEU's) adding an annual 2% management fee, huge amounts of interest on debt, before reselling the health care company, pocketing 20% of the monstrous profits?

The sale of HCA to KKR and Triad to CHS raised health care costs over $2 billion annually. It was all interest expense.

One potential PEU target is LifePoint Hospitals, itself a profit generating spin off from HCA. When KKR holds an initial public offering for HCA, it will the company's fourth IPO in its relatively short lifespan.

When PEU boys sniff around your industry, they do so for one reason: to make big money. That they're nosing around health care reform is a bad sign.

Horse trading is the fractal on health reform. Congress is looking pretty lame. The Carlyle Group and public servants have an interesting history.

The Carlyle Group's Karen Bechtel sits on the board of LifeCare, HCR ManorCare and Multiplan. The Senate health reform bill has sweeteners for long term care companies, including LifeCare and ManorCare.

LifeCare lost 25 patients after Hurricane Katrina in 2005. Did Karen thank the White House and Senate Homeland Security Committee for omitting the hospital with the highest patient death toll from their 2006 Katrina investigation reports? Or did LifeCare's lobbyists do the thanking?

Did Frances Townsend call Karen Bechtel during the White House investigation? The report read better as a risk management document for LifeCare, than any credible investigation. Armies of LifeCare lawyers rose to the company's defense, mostly by going on offense.

After failing patients in one of 21 LifeCare long term acute care hospital facilities, Congress approved Carlyle's buyout of ManorCare, with nearly 500 nursing homes. The stuffed stocking deal went through days before Christmas 2007.

Lessons Learned author Frances Townsend recently testified before the Senate Homeland Security Committee, now inflicted with amnesia. Townsend quit public service, citing fear of a subpoena. She is now a risk management consultant for Baker Botts, the law firm of James A. Baker, III, formerly of Carlyle Group fame.

Carlyle can bring its risky financial and operating practices to health care. Fran and her boss can write softball reports, defending their friends. Deform is coming. PEU's stand ready.